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San Diego
Saturday, May 18, 2024
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Temporary Pause Slows San Diego’s Life Science Market

Real estate investments in San Diego’s booming life science industry have taken a decided pause in response to rising interest rates and falling stock market prices.

The overall vacancy rate for life science real estate remains low and has been steadily dropping since 2019 when it was 7.5% to 2.7% in 2022, according to Brian Starck, executive vice chairman of Cushman & Wakefield.

Brian Starck
Executive Vice Chairman
Cushman & Wakefield

At the same time, space for subleasing has risen with 577,000 square feet of sublease space available in February with more potentially coming online, Starck said.

Starck said that 2022 was the slowest market for IPOs (Initial Public Offerings) in the last five years and the first half of 2023 is shaping up to be the same.

“The fed (Federal Reserve Bank) is expected to raise interest rates through the second quarter of 2023 , so it is likely that the IPO window will stay closed through the same window,” Starck said.

Beyond then, Starck said that “it is likely that biotech offerings will pick up in the second half and investors will be focused on companies with therapies in clinical trials.”

Getting Better

Starck is optimistic looking at the long term for San Diego’s life science industry.

“San Diego is attracting investment and talent from around the globe and will continue to be one of the top three global powerhouses for biotechnology company formation, genomics, research tools and mechanical devices,” Starck said. “Many biotechnology companies have adequate cash on hand to continue weathering the storm and advancing their drugs through trials.”

Also expressing optimism for the long-term outlook was Ted Jacobs, vice chairman of CBRE leading the brokerage’s Life Sciences Practice.

“The investors are just being more patient with who they give money to. That’s definitely going to come back. The industry’s not going away. People unfortunately are always going to be getting sick,” Jacobs said.

Confidence in the Economy

“My opinion is it’s going to get better the second half of this year,” Jacobs added. “There are a lot of companies that look to expand. They’re just not ready to do anything today. Once these companies are more confident in the economy, then they’ll expand.”

The life science real estate market has been on fire for the past four years, fueled in part by the COVID-19 pandemic.

Market Activity Normalizing

Jacobs said the current slowdown indicates that market activity may be returning to a more normal level.

Both Jacobs and Starck said that for now, there’s little demand for big chunks of life science space.

“The bulk of the demand is made up of smaller companies,” Jacobs said. “We’re seeing a slowdown for companies that would typically be in the market for 50,000 square feet and above.”

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